Award of national highway contracts to be hit by expanding Bharatmala Phase I, study finds

A greater focus on execution and the inherent benefits of the hybrid annuity model have resulted in a steady increase in the pace of NHAI construction, from 8 km per day in fiscal year 2018 to 13 km per day in fiscal 2018. of fiscal year 2022. CRISIL said he expects the pace to pick up. to approximately 16 km per day by FY2024.

However, in the field, notwithstanding the advantages of this construction model, awards under this mode have had their share of challenges. Only 56% of projects awarded in fiscal years 2016 to 2018 are complete, while 37% are still under construction.

Of the contracts awarded in fiscal years 2019 and 2020, 90% are still under construction. CRISIL stated that financial closes are achieved with a 3-4 month delay and, more pressingly, ~40% of projects had been given fixed dates of 1.5 years to publish contract awards, indicating that land acquisition problems persist.

The report noted that while the hybrid annuity model provides automatic delimitation and disconnection clauses, preventing projects from being stuck in the under-construction phase, delays for these approvals have been observed.

A few execution concerns also surfaced. Although 75% of projects were awarded to major players in fiscal year 2016 to 2020, a quarter of projects were delayed two years beyond their originally planned commercial operation date, with only 55% physically progressing.

The research house added that in fiscal years 2021 and 2022, when the financial threshold to bid was reduced, the NHAI award peaked.

However, package sizes have been reduced by 30% compared to 2016-2020 levels, to speed up construction by awarding more players.

All of this has led to increased competition, with almost 15 bidders per project. Bid premiums have fallen to around 4% from around 16% on average previously. Cases where even the big players increased aggressively and a third of the projects were awarded with discounts.

Interestingly, the data shows that mid-sized regional players won around 40% of the hybrid annuity model rewards in fiscal year 2022, compared to 25% in the previous period. While approximately 70% of projects awarded to medium-sized players in FY2021 reached financial close, timely execution by these players remains a key element to monitor given their large share.

Faced with growing concerns about aggressive bidding, the government has meanwhile taken steps to reduce the intensity of competition. The NHAI has proposed a new method for calculating financial capacity. However, this remains to be finalized.